By Marty Conway
Forbes has released its annual valuation of NFL teams. Released during the preseason, it's a much-anticipated date in the sports-business media world, as it provides a window into the financial operations of the NFL, the most valuable professional sports league in the world.
Once again, the Dallas Cowboys are recognized as the most valuable franchise, according to the Forbes methodology and ranking, given a value of $2.3 billion. Despite not reaching the Super Bowl for 17 years, the Cowboys and owner Jerry Jones have continued to build a dominant business enterprise.
Locally, the Washington Redskins and Baltimore Ravens both landed in the top 10 of the Forbes rankings; the Redskins were third, while the Ravens jumped two places in the rankings from 2012, moving from 11th to ninth overall. Forbes valued the Redskins at $1.7 billion, and the Ravens at $1.2 billion. The Ravens are an interesting case study for the methodology of Forbes valuation exercise, because they are coming off a Super Bowl XLVII victory, yet their valuation increased by only 6 percent from the prior year.
According to Forbes, the average NFL team valuation increased by 5 percent. If all teams, on average, increased by 5 percent across the board, why would winning the Super Bowl be worth just an additional 1 percent? The answer lies in the operating structure of the NFL, the strength of national revenues and the opportunities (or limitations) in local revenues for NFL teams.
The league splits all national revenue equally among its 32 teams, and credits the genius of the late NFL commissioner Pete Rozelle for the reason that each team can expect nearly $200 million in revenue from national television contracts alone. The Green Bay Packers are the only publicly owned franchise in the league (owning shares does not give shareholders any operating interest), and their report from 2012 revealed the team would receive $170 million from national sources, including television and licensing.
Analysts have used the information from the Packers, as well as recent franchise sales and other public documents, to understand the operations and form a framework for valuing teams in the major professional leagues in the United States.
The Ravens can expect the same portion of those national revenues as all the other teams. Those soaring revenues alone can cover the player payroll expense, and then some. One of the biggest differences in the Forbes team valuations is in the local revenue opportunities. The largest pool of those revenues would include dollars from ticket revenues, M&T Bank Stadium naming rights, sponsorship, concession revenues, local media revenues for preseason games, regular-season radio as well as a portion of the revenues generated from non-Ravens events at the stadium.
The Ravens and M&T Bank signed their stadium naming-rights deal in 2003, for a reported $75 million through 15 years. The annual average of the revenues from this deal is $5 million per year, a fraction of the revenues that the Cowboys will receive from their recent $500 million, 25-year deal with AT&T for the naming rights at their stadium. The San Francisco 49ers have a $220 million, 11-year deal with apparel brand Levi's for naming rights of the team's new stadium, set to open in 2014.
In February of this year, the Ravens announced they were raising ticket prices by an average of 10 percent, the first price increase in four years and the sixth time since the stadium opened in 1998. Although this is a measurable increase to local revenues, it's not the kind of windfall that a new naming-rights deal or other media revenues might deliver. The Ravens have added new electronic signage to M&T Stadium as part of the $35 million in stadium upgrades the team announced before its first preseason game. These new electronic signs can offer more advertising and sponsorship dollars from selling packages to companies wishing to jump onto the bandwagon of a Super Bowl-winning team.
Through the lens of the Forbes valuation method, winning the Super Bowl has provided additional value to the Ravens, just not what it might have been for the New England Patriots, Redskins or New York Giants, for example. The increase in valuation for the Ravens franchise has been built on the franchise's streak of making the playoffs for five consecutive years, making deep runs during the postseason and capping it off with a Super Bowl XLVII win.
Locally, from a business perspective, the Ravens are punching above their weight class. As Forbes' ninth-ranked NFL team, Baltimore is valued higher than many teams in cities with bigger populations and media sizes. Every team Forbes ranked higher than the Ravens sits in one of the top 10 largest markets, according to Nielson's measurement of U.S. television markets.
The Ravens' valuation exceeds NFL teams in some of the richest markets, such as Miami, Denver and Seattle. Nielson places Baltimore 27th, and the surrounding markets include the homes of the following NFL teams: Steelers (No. 23), Panthers (No. 25), Colts (No. 26), Chargers (No. 28), Titans (No. 29) and Chiefs (No. 31). According to Forbes' valuation, the Ravens surpassed all six of those market-size peers, with Indianapolis coming closest at No. 11 and San Diego ranking lowest at No. 25.
Valuation exercises, such as the one by Forbes, are a mix of science and art, and the valuation of any enterprise, including those in sport, is determined at the point of asset transfer, when there is a buyer and a seller. Forbes provided a window into the business of the NFL, giving added support to the conclusion that owning an NFL franchise is as close as there is to certainty when buying a Powerball ticket. The only question is, how much is the jackpot?
Posted Aug. 19, 2013